Is That Chinese Supplier a Real Factory? How We Establish It

“Is this company an actual factory?” is the question underneath almost every other question a project buyer asks about China. It is also the question that is hardest to answer from the outside, because the public face of a manufacturer and the public face of an office with a good photographer look identical on a screen.

This page describes how we establish it before a supplier goes on a project shortlist. It is a description of our own work rather than a set of instructions for a buyer to run: the point of appointing a China-side partner is that this happens before a name reaches you, not that you are handed a procedure. But the logic is worth publishing, because it explains what a supplier shortlist from us actually rests on.

Step one: establish that the legal entity exists, and what it is

Every company registered in mainland China has an 18-character unified social credit code. It is printed on the business licence, it is unique to the entity, and it is the key that every other record is tied to. A trading name, a brand, a website domain and an export contact are all detachable from the entity; the code is not.

From the registration record behind that code we read four things that matter more than the company name:

• Registered scope of business. The scope distinguishes a manufacturing entity from a trading entity in the company’s own registration. A company whose registered scope covers wholesale and import-export but no production is telling you what it is.
• Registration date and status. An entity registered recently, under a name presented as long-established, is a discrepancy to resolve before anything else is done.
• Registered and paid-in capital. Registered capital is a declaration; paid-in capital is money that actually went in. The gap between them is ordinary and not in itself a problem, but it is information.
• Legal representative and shareholders. These are the names that carry into step two.

The single most common finding at this step is not fraud. It is that the entity issuing the quotation and the entity that owns the production is not the same company — which is a normal Chinese corporate arrangement and completely workable, provided everybody knows it before the contract is written rather than after a claim is raised.

Step two: trace the ownership chain in both directions

Reading a single registration record tells you about one company. Reading the ownership chain tells you about the business.

Forward — from the entity to its owners: who holds the shares, whether the shareholders are individuals or other companies, and where those companies sit. Backward — from those owners to everything else they hold: how many other entities exist under the same people, what those entities do, and whether one of them is the production company while the one quoting is the sales company.

Three patterns recur, and each has a different consequence:

• One entity, one site, production and sales together. The simplest case, and the easiest to contract.
• A group: a production entity and a separate export entity under common ownership. Very common and entirely workable. What matters is knowing which entity will sign, which will invoice, and which one actually holds the certificates.
• A sales entity with no production entity behind it anywhere in the chain. This is a merchant. It is a legitimate business, but it is not the source it is being presented as, and the project needs to know that before pricing is compared.

The reason both directions are needed is that the forward view alone cannot distinguish the second pattern from the third. Both show a sales entity. Only the backward view shows whether a production entity exists on the other side of the same owners.

Step three: establish that production exists, and what it can actually do

Registration proves an entity exists. It says nothing about whether there is a production line. For that we use whatever combination of evidence a given case allows:

• Platform verification reports, where the supplier holds one. These carry a site visit record with floor area, workforce, production equipment and process coverage. They are the most useful desk evidence available because the visit was made by someone who was physically there.
• The production process against the product. A supplier that describes itself as a manufacturer of a product whose key process it does not hold in-house is describing an assembly operation, and assembly operations have different lead times, different cost structures and different quality failure modes from integrated production. Both can be the right answer; they are not the same answer.
• Our own visit. In the Guangdong clusters we go and look. There is no desk substitute for standing in the workshop, and the difference between a showroom and a production floor resolves itself in about ninety seconds.

One caution that is worth stating plainly, because it is widely misused: headcount figures from public records are not a measure of factory size. Social insurance registration counts are commonly a fraction of the people actually working on a site, and using them as a proxy for capacity produces confident, wrong conclusions. We treat them as one weak signal among several, never as a threshold. What a factory can actually deliver is read from floor area, equipment, process coverage and order history — and confirmed by looking.

What a visit covers before a project order is placed is set out in what a factory audit covers before a project order.

Step four: read the certificates against the schedule, not against the cover page

Certificates are where the most expensive errors happen, because a certificate is easy to produce and hard to read. A certificate has a cover page with a logo, and an annex — the schedule — listing exactly what it covers. The cover page tells you almost nothing. The schedule tells you everything.

Two things have to reconcile before a certificate means anything for a project:

• Does the schedule list the model you are buying? Certification attaches to a tested configuration, not to a company. A door set certified with one hardware set and one glazing build-up is not certified with a different one. A window system tested at one size is not automatically covered at a larger one.
• Is it current, and issued against the standard your market names? Validity dates, the issuing scheme, and whether the standard cited is the one the destination authority actually recognises. A mark that satisfies one market does not transfer to another, which is why our certification comparison by market exists.

When a schedule does not list the model being supplied, that is not automatically a problem — the factory may be entirely capable and simply have tested a different configuration. It is a cost and programme question that has to be settled at quotation stage, not discovered at handover. Inspection of the goods themselves, at our end, is carried out before shipment by our own team.

What happens when the records do not reconcile

Most discrepancies are not deception. They are the ordinary untidiness of businesses that grew faster than their paperwork: a company renamed, a production entity moved to a new registration, a certificate issued to a related company, a trading arm set up for export and used for everything.

What we do with a discrepancy is put it to the supplier directly and see how it is answered. A factory that can explain its own corporate structure in one conversation is a different proposition from one that cannot, and that conversation is more informative than any document. What we do not do is treat an unresolved gap as acceptable because the price was good. A gap that cannot be explained before the order is a gap that will still be there when a claim is made.

Where a supplier is a merchant rather than a producer, that is recorded as what it is and the decision is taken on the merits. The failure mode we are guarding against is not working with a trading company; it is working with one while believing it is a factory. The difference between those two positions is covered in manufacturer, trading company or sourcing agent.

Frequently Asked Questions

What is the 18-digit code on a Chinese business licence?

It is the unified social credit code, the unique identifier of a registered mainland Chinese entity. Company names, brands, domains and export contacts can all change or be shared; the code stays attached to the legal entity and is the key that registration, ownership and filing records are tied to.

Does a company being a trading company mean it should be avoided?

No. Merchants are a legitimate part of the supply chain and are sometimes the right answer, particularly for catalogue products. The problem is not buying from a trading company; it is buying from one while believing it is the producer, because that misunderstanding sets the wrong expectations on lead time, cost structure and who can solve a quality problem.

Can employee numbers from public records be used to judge factory size?

They should not be. Social insurance registration counts are frequently a fraction of the people actually working at a site, so using them as a capacity proxy produces confident and wrong conclusions. Floor area, equipment, process coverage and order history are the meaningful indicators, confirmed by a visit.

If a supplier holds a certificate, is the product certified?

Not necessarily. Certification attaches to a tested configuration, and the schedule attached to the certificate lists which models and configurations it covers. The question that matters is whether the model being supplied appears in that schedule, against the standard your destination market recognises, and within the validity dates.

Do you publish which factories you work with?

No. The supplier base is the asset a sourcing partner is paid to build and to keep working, and publishing it would not survive contact with the market. What a buyer receives is a shortlist that has already been through this work, with the reasoning behind each name.

Why this sits with us rather than with the buyer

Every step above is doable from outside China. None of it is doable quickly, in Chinese, across several candidate suppliers per category, while a project programme is running. On a multi-category package that is eight to fifteen supplier chains to establish before a single price is comparable, which is the practical reason this work sits on the China side of the relationship rather than with the buyer.

FBM Sourcing has been sourcing building materials and FF&E from China since 2014, and has shipped more than 1,000 containers for project buyers in over 20 countries. We act for the buyer on a commission of 5–8% of order value — 5% on orders above USD 50,000 and 8% below — which does not change with which factory is appointed, so the shortlist is not a commercial decision for us.

Our clients are developers, general contractors, builders, commercial project owners, interior design and construction companies, and FF&E solution providers. We do not sell to individual homeowners. Send your specification, BOQ or drawings through our project procurement enquiry page and we will review it and come back to you.